Counterparties: Thundering herd immunity
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Last week, Eric Holder, the US attorney general, told a Senate committee something many of us had long believed. America’s banks, he worried, may have “become so large that it does become difficult for us to prosecute them.” Bank reform advocates weren’t happy about that statement, which referred to criminal prosecutions rather than civil settlements.
A few days later, Elizabeth Warren (fast forward to the 1:22 mark) sparred with Treasury and OCC officials over whether DOJ had done some kind of cost-benefit analysis with HSBC, which paid $1.9 billion to settle money laundering charges. The bank didn’t face criminal prosecution. DOJ criminal chief Lanny Breuer said last year it was important to “look at the collateral consequences” when prosecuting HSBC.
In his column today, Andrew Ross Sorkin, as Felix has done, makes the case for going after individuals, not whole corporations. DOJ guidelines, Sorkin notes, mandate that prosecutors take into account “the risk of harm to the public”. The government’s criminal charges against Arthur Andersen in the wake of the Enron bankruptcy punished innocent employees: the company’s failure meant 28,000 lost jobs — and a judge later overturned the charges.
Paula Dwyer calls for a “middle way” between no prosecution and putting a large institution out of business. She points to the DOJ’s recent settlements with subsidiaries of RBS and UBS over the Libor scandal, both of which involved the admission of criminal guilt in jurisdictions outside the US. Eliot Spitzer suggests a three strikes policy for banks: after a third guilty plea, “we will take you and we will restructure you and sell off the pieces of the bank.”
In his testimony, Holder added that the “greatest deterrent” is to prosecute individuals, not corporations. But since the financial crisis, the DOJ hasn’t criminally convicted a single major US bank executive. Before stepping down recently, Breuer put the problem this way: “If there had been a case to make, we would have brought it.” — Ryan McCarthy
On to today’s links:
And, of course, there are many more links at Counterparties.